The Efficacy And Future Of Liberty Mutual V. Brookfield

By on June 14, 2017
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Recently, in Gillotti v. Stewart, the Third District Court of Appeal ruled that the Right to Repair Act is the sole remedy for a plaintiff’s construction defect claims. This ruling provides that a plaintiff’s common law negligence claims are barred by the Right to Repair Act.

In Gillotti, Defendant Rick Gerbo/Gerbo Excavating grading sub added soil over tree roots to level the driveway on the Plaintiff/homeowner’s sloped property. Plaintiff sued under the Right to Repair Act alleging that the grading contractor’s work damaged the trees on the property. The jury found that the grader was not negligent, the homeowner appealed arguing that the Right to Repair Act does not bar common law negligence claims against Gerbo and essentially, that the trial court failed to appropriately apply Liberty Mutual.

The Right to Repair Act holds contractors/subs responsible for defects only if it is proven that they were negligent in causing the violation. The jury found that the construction violated standards under the Right to Repair Act, but that the grader was not negligent. In this instance, the grader was not consulted, nor was the grader responsible for obtaining a permit – instead, the grader discovered that the foundation and stem wall systems were not built to the correct length and so to rectify things, the grader backfilled dirt in order to level the driveway. In so doing, tree roots were covered.

The homeowner Plaintiff moved for a judgment notwithstanding the verdict, or a new trial alleging that the court failed to apply the common law negligence theory against the grader. The trial court denied the motions holding that the Right to Repair act is the exclusive remedy – that no other causes of action are valid. The Third District Court of Appeal (Nevada) affirmed.

It held that consistent with the statutory language, the legislative history establishes too that it was intended that the Act cover damages caused by construction defects. The Appellate Court disagreed with the holding of Liberty Mutual. It criticized Liberty Mutual for failing to analyze the language of Civ Code 896 – the language “clearly and unequivocally expresses the legislative intent that the Act apply to all actions seeking recover of damages arising out of, or related to deficiencies in, residential construction, except as specifically set forth in the Act. The Act does not specifically except actions arising from actual damages. To the contrary, it authorizes recover of damages for ‘the reasonable cost of repairing and rectifying any damages resulting from the failure of the home to meet the standards.’ (Civ. Code 944)” The Court also disagreed with Liberty Mutual in its view that that Act does not preclude common law claims for damages pursuant to Civ Code 931 and 943, which acknowledged exceptions to the Right to Repair Act’s statutory remedies. The Third District ruled “Neither list of exceptions, in section 943 or in section 931, includes common law causes of action such as negligence. If the Legislature had intended to make such a wide-ranging exception to the restrictive language of the first sentence of section 943, we would have expected it to do so expressly.” The Court held that the Right to Repair Act bars common law claims for damages due to construction defects within the scope of the Act, subject to specific exclusions such as fraud, personal injury, for example.

The split on the question of the efficacy of Liberty Mutual is likely going to be resolved by the McMillin Albany LLC v. Superior Court (2015) case, which is currently pending in the California Supreme Court. There, the Fifth District Court of Appeal (Fresno) concluded that all claims arising from defects in residential construction (for residences sold on or after 1/1/03) are subject to the standards and requirements of the Right to Repair Act and that claims brought under this Act require notice to the builder and participation in prelitigation procedures outlined in Chapter 4 of the Act before suit is filed.

The homeowner plaintiffs in McMillin did not give notice of the alleged defects before filing suit. They filed suit alleged causes of action in strict products liability, negligence, breach of express and implied warranties, and in the amended complaint, they added a cause of action for violation of the building standards pursuant to Civ. Code 896. The parties attempted to negotiate a stay to proceed under SB800, but Plaintiffs then dismissed their cause of action under the Right to Repair Act. Plaintiffs argued that they are not required to comply with the SB800 prelitigation process as they dropped the Civ. Code 896 claims from their case. The trial court ruled that Plaintiffs are not required to proceed with the prelitigation process where they dropped the causes of action for violation of the Right to Repair Act. The trial court relied on Liberty Mutual in rendering its opinion. The Fifth District Court of Appeal was tasked to review whether McMillin’s motion to stay was properly denied. It ruled, in short, the Legislature intended that all claims involving construction defects in residential construction be subject to the Right to Repair Act, thus homeowners must comply with the prelitigation guidelines (which would allow for a builder to conduct repairs) outlined by the Act. The California Supreme Court noted an irreconcilable conflict between Liberty Mutual and McMillin, thereby ordering that the Fifth District opinion be de-published pending its review by the Supreme Court.

The outcome of McMillin will offer more clarity on the conflicting application of Liberty Mutual and Gillotti.

Filed under Construction Defect, Right to Repair Act

Foreclosed Homeowners Now Have Standing to Sue

By on September 22, 2016
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A unanimous state Supreme Court ruling affords foreclosed upon borrowers standing to bring suit by showing that there has been an invasion of his/her legally protected interests. In 2006, homeowner Tsvetana Yvanova borrowed money and executed a deed of trust on a residential property. The lender and beneficiary of the trust deed, New Century, filed for bankruptcy in 2007 and was liquidated in 2008. Yvanova claimed that the trust deed was illegally assigned to a bank in 2011, after New Century dissolved, and that the deed was improperly assigned to an investment trust. Yvanova’s home was sold at an auction in 2012. Yvanova’s suit is but one in the many similar suits challenging the validity of transactions by lenders following the collapse of the housing market.

The Supreme Court ruling in Yvanova v. New Century Mortgage Corp, et al. focuses narrowly on the issue of standing. This case establishes that a homeowner has standing to bring suit, however, in order to prevail, the homeowner/borrower would still need to show that any assignment was void, or in other words, that there was some injury to the homeowner/borrower. In essence, wrongful foreclosure plaintiffs can now ensure that their grievances are heard.

Filed under Foreclosed Homes

Insight into the 90 Day Claim Rule

By on March 2, 2016
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In the recent Picerne Construction Corp v. Castellino Villas matter, the Court interprets former Civ Code 3115 (regarding deadlines to record a claim of mechanic’s lien) and section 3131 (regarding the definition of a work of improvement).

Picerne agreed to build an apartment building complex comprised of 11 buildings for Castellino. Certificates of occupancy were issued on July 25, 2006, however Picerne continued to work after this date – there was roof work and installation of stairway grip tape that was still required under the contract. Though Castellino signed a document entitled “Owner’s Acceptance of the Site” on September 8, 2006, the roof and stairway work continued to sometime shortly after September 8, 2006. Castellino began renting the apartment units in October 2006. This was the same time that Picerne asked Castellino to release the project retention proceeds.

Picerne recorded a claim of mechanic’s lien on November 28, 2006 and filed a complaint against Castellino and others to foreclose its mechanic’s lien on December 29, 2006. The trial court ruled that the project was completed no earlier than September 8, 2006, that Picerne timely recorded its claim of mechanic’s lien, that Picerne was entitled to foreclose on its lien and that the lien was senior to the deed of trust in favor of Bank of the West. The trial court ordered Picerne’s lien foreclosed; Castellino appeals.

In the appeal, Castellino makes multiple arguments including: 1) Picerne did not have a valid mechanic’s lien because it did not record a claim within 90 days after substantial completion of the project pursuant to former Civ Code 3115 – that the date started to run as of July 25, 2006 when the certificate of occupancy was issued, and 2) each of the 11 buildings of the complex were separate residential units per the meaning of section 3131, thus different lien claim deadlines applied. The Court disagreed with both of these arguments. The Court reasoned that the Legislature deleted “trivial imperfections” in the predecessor to this Code and defined completion of the work of improvement as actual completion of the work. Ample evidence points to the fact that work continued between July 25, 2006 through September 2006, and that this work was not corrective work, repair work, nor warranty work, but that the work (which was roof work and grip tape application work) was required by the terms of the contract. Thus, the lien was timely recorded. The Court also discussed that under the meaning of section 3131, Castellino failed to show that there was separate title for each of the 11 buildings, and instead, that Castellino filed one notice of completion for the entire project, thus different lien claim deadlines are not applicable.

In short, actual completion is not to be confused with substantial completion and where the contract calls for specific work, that work must be completed before the time starts to run on the 90 day deadline to record a claim of mechanic’s lien. Also, where a work of improvement is comprised of multiple units/buildings, where there is no separate title for the individual units/buildings and where there is one notice of completion for the entire project, there are no separate deadlines, or deadlines calculated on a “per unit/building” basis.

Filed under Mechanic Liens

JAMS Engineering and Construction Arbitration Rules Amended

By on December 17, 2014
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Effective November 15, 2014, the JAMS Engineering and Construction Arbitration Rules were amended.  Various parts of the arbitration process rules were revised, including hearing procedures, arbitration selection, and the appeals procedure.  For example:

  • Rule 7 was amended to clarify single versus tripartite appointment of arbitrators.  When the dispute involves construction claims less than $2 million, a sole arbitrator will be appointed, unless the parties agree otherwise.  Otherwise, a tripartite panel is appointed.
  • Rule 9 was modified to eliminate confusion regarding a notice of claim versus a demand for arbitration.  Consistent with Rule 5, a party’s demand for arbitration shall constitute a notice of claim under Rule 9.
  • Rule 13 was amended regarding withdrawal from arbitration. Instead of 14 days, any opposing party to a request to withdraw a claim or counterclaim without prejudice now has 7 days to request the arbitrator condition the withdrawal.
  • Rule 24 was amended to allow an interim award or a partial final award in connection with the award of interim relief, however, the time that a Party can request a correction will run from the date of service of a partial final or final award (not an interim award) issued by JAMS.
  • Rule 34 now allows parties to agree to submit to the JAMS Optional Arbitration Appeal Procedure at any time. Thus, this change means that the parties no longer need to agree to this procedure prior to the award being final.

For a complete summary of the key revisions, click here.

Filed under JAMS Engineering and Construction Arbitration Rules

Anti-SLAPP Statute Does Not Apply to Statements Made to HOA During Board Meetings

By on June 2, 2014

In an April 15 opinion, the California Court of Appeal decided that a builder cannot use the anti-SLAPP statute to circumvent fraud-based claims where there were misrepresentations by the builder to the homeowners association regarding repairs for defects at the project.

According to the opinion in Talega Maintenance Corp. v. Standard Pacific Corp., two builders developed a planned community in San Clemente, Calif., that included several hiking trails adjacent to the project.  After heavy rains, the trails failed in 2005 and in 2010.

CON BLOG_HOAThe HOA sued three former employees of the developers. These employees were appointed by the developers to be members of the HOA board of directors at various times since 2003.  The HOA claimed that these employee-defendants committed fraud and negligence and that they breached their fiduciary duties as board members.

After the trails failed in 2005, the employee-defendants represented in board meetings that the HOA, rather than the builders, was responsible for making and paying for the repairs.  The HOA submitted evidence that the builders’ representations were accepted without question and that HOA funds were used to effectuate repairs.  When the trails failed again in 2010, the board formed an independent board without any builder board members, and hired its own consultants to investigate the causes. That investigation revealed that the builders never completed the trails and that the builders were bound to perform the repairs forever, based on relevant documentation.

In response to the HOA claims, the defendants filed anti-SLAPP motions to target the causes of action for fraud, negligence, and breach of fiduciary duty.  The defense took the position that the statements at the HOA meetings were made in a public place or forum in connection with an issue of public interest, which protects them from suit under California Code of Civil Procedure § 425.16(d)(3).  The trial court denied the motions stating, “[Defendants] failed to establish that any statements were an exercise of free speech. Additionally, [defendants] failed to establish that statements at issue were made before, or in connection with, an official proceeding authorized by law.  Moreover, even if the statements were made in a public forum via a [homeowners association] open board meeting, [defendants] have not demonstrated that they involved a matter of sufficient public interest or an exercise of a free speech right.”

The case did not discuss whether the HOA could rely on the builders’ representations, but rather focused on the applicability of the anti-SLAPP statute.

Filed under Anti-SLAPP Statute, Homeowners Association (HOA)